"Fiat money is backed by men with guns; Bitcoin is not. So why should this thing have any value?"--Uber statist economist Paul Krugman.

Tuesday, September 22, 2009

Debunking the Cash 4 Clunkers success myth

From AOL Auto, a thorough debunking of the myth of Cash for Clunkers (C4C) success finally begins to hit selected parts of the MSM:

Myth One: C4C was environmentally friendly

Quicker than you can say, “Holy statistics, Mr. Wizard,” the numbers nerds ascertained that the new vehicles sold under C4C will use more—not less—fuel than the beaters that were turned in and destroyed.

How can that be? Think of it on a personal level. Suppose you had a 10-year-old particulate belcher that, as the euphemism goes, needed work. Even if you lived in an Orlando suburb, you’d still be less than excited at the idea of piling the kids into it and lighting out for Disney World. But that new Malibu that gets a hell of a lot better mileage is a different kettle of green. You trust it; it’s economical; you drive it more. A lot more, according to another piece of research.

CNW surveyed drivers involved in the purchase of the first 239,000 C4C vehicles. The average intended annual mileage was 10,894, up from the actual clunker mileage of 6,162. For those of you without a calculator falling readily to hand, that’s nearly double.

But what about that miles-per-gallon improvement we were promised? Well, we got it. The average fuel economy reported by C4C buyers rose from 16.3 mpg for Old Dobbin to 24.8 for the new carriage. A monster step in the right direction. Add to that the over-90-percent reduction in tailpipe excretions and we’re still looking good, right?

Not as good as we might. The new car, because it’s new and fun and green and clean and smells good, will be given some 61 additional gallons each year by its grateful owner. For those first 239,000 C4C vehicles, that’s 14.6 million gallons that the clunkers wouldn’t have gobbled up. The approximately 700,000 total vehicles moved under the program will therefore use an additional 42 million gallons of fuel annually during the first years of ownership.

OK, but what about Myth Two--the effective stimulation of the economy? Turns out that a lot of those enthusiastic buyers are now beginning to realize they've been had:

Twice as many C4C participants as normal buyers are worried about the negative impact a brand spanking new payment book with $275 printed on each of its 72 pages might have on rent and Hamburger Helper expenditures. (The actual C4C numbers were an average loan length of 49 months and an average payment of $317.) No wonder. I’m surprised that the survey didn’t find half of the C4C spenders sitting up nights watching Suze Orman and Dave Ramsey re-runs.

If you are someone other than the owner of a Treasury Department printing press, you might be allowed a mild case of regret over adding $20,000 or $30,000 to your household debt during what can be called a time of economic uncertainty.

Three revealing line items in a separate CNW survey noted that the drain on the family coffers would be offset by reducing the pay-down of credit card debt, deferring home improvement and removing money from non-targeted savings. About one-fifth of buyers surveyed cited each of these categories as the number one source of their car payment bucks.

Leaving aside the prospects of leaking roofs or empty savings accounts, just consider the act of slowing up on reducing those credit card balances on which you are paying 19 percent interest or worse. Thinking about that in the cold light of early dawn could do more than induce buyer’s remorse; in a clear-thinking head of household able to do basic arithmetic, it could result in thoughts of panic.

Myth Number Three--that this was a good use of Federal tax dollars, is now finally being exploded in parts of the MSM as it has been by Libertarians since day one:

Cars for Clunkers took $2.8 billion from the general roster of 300 million citizens and handed it tax-free to a small group of 700,000 citizens.

Not quite right there: a lot of those folks with $20-30,000 of new car debt are now discovering the dirty little secret that their rebates are taxable, but the point remains:

Cash for Clunkers--without either making a significant environmental impact--managed to achieve the following

1) Transfer $2.8 billion of taxpayer money into the hands of 700,000 Americans for a consumer spending binge that many of them couldn't actually afford

2) Created hundreds of billions of dollars in new consumer debt in the middle of a deep recession; and

3) Failed to succor the automobile industry for even ten minutes longer than the massive cash giveaway lasted.

Are you kidding me? Half the article is based on an utterly unreliable garbage statistic such as that? C'mon.

Quick, what was your annual mileage in the last year? Most people can't answer that question, let alone estimate "intended annual mileage."

Utterly bogus.

Next "Twice as many C4C participants as normal buyers are worried about the negative impact a brand spanking new payment book."

So what? Let's see, 8% of "normal buyers" are worried, but 17% of the C4C buyers are worried. Should we be worried that they are worried? Should I be worried that you're worried that that a sub-population of car buyers are worried?

Perhaps if you compared the income demographics of the C4C car buyers with non-C4C car buyers in the same income demographics, you'd learn that 17% worrying might even be lower than normal for that income demographic.

So your conclusions are nonsensical. You really should be more skeptical and critical of garbage editorializing like this. Maybe "car guys" aren't the best source for statistical analysis of survey data.

"Intended annual mileage" is not a good figure. Most people lack the level of numeracy needed to accurately estimate how many miles they'd drive in a year. I'd guess that most would tend to overestimate it, especially when they still feel the "new-toy" rush.

Plus, it fails to take alternate modes of transportation into account: perhaps the hypothetical people wouldn't have driven their old car to Disney World, but they might have flown there.

I found their analysis of "Myth 2" interesting, as I hadn't really considered that angle before. It's essentially the Stadium Fallacy: building a new sports stadium will be good for nearby stores and restaurants... to exactly the same extent that it's bad for stores and restaurants in other parts of the city.

@A1: Perhaps if you compared the income demographics of the C4C car buyers with non-C4C car buyers in the same income demographics, you'd learn that 17% worrying might even be lower than normal for that income demographic.

This is likely to happen only if the average income of a C4C participant was lower than the average income of a C4C nonparticipant. I haven't seen numbers on this, but I'm pretty confident that this isn't the case.

Besides, you've missed the point. The C4C argument was that there would be an economic stimulus from the give-aways. The counterargument is that people changed what they spent money on, but not the overall amount of money that they spent, hence having no positive effect on the economy as a whole.

I don't know why you think that the income demographics for a C4C buyer wouldn't be different than a "normal buyer." Obviously, the C4C buyer represented a subset of car buyers that were trading in older cars, which makes them a subset of "normal buyers." My hypothesis would be that people with lower incomes tend to own older cars.

But, regardless, unless we know whether or not income demographics are the same or different, the comparison of C4C buyers with "normal buyers" is bogus and speculative.

One of the ideas of C4C was to stimulate spending on new cars, and help the auto industry. Therefore, the positive effect on the economy as a whole, it could be argued, is a healthier auto industry. Money doesn't just disappear after it has been spent once on a car - the autoworkers will be spending that money in stores, restaurants, TAXES, etc.

BTW, my point is not to argue for or against C4C. My point is that the article Steve cited is nonsense.

Notice A1 (SteakSauceBoy) only uses substance-free conclusory criticisms in nearly every single solitary post, NEVER actually putting forth positive defenses for what he is defending by inference in his incessant attacks anyone who attacks the latest lefty giveaway scheme(s).

Incidentally, I have yet to see where the success of wealth redistributive giveaways subsidizing narrow special interests (often) beholden to the left has ever been truly evaluated (by the same lefties) under any real metric besides how fast and how furious they could burn through the money before the public catches onto their scam.

Their view of success appears to be that 1) all the money's gone and 2) the basic programmatic mechanics of the giveaway (not the substantive results) were accomplished.

In short, they simply assume the program's "inherent" benefits, based on the mere realization of massive transfers of wealth centrally-directed by (to their minds) brilliant altruistic elites.

In many ways, merely accomplishing such serial instances of extensive micro-meddling economic control by government is itself progress. It just sets up the path for round after round after round of more of the same....

While I could support the program to move the current cars off the lots, it was ludicrous to think this would jump start an industry. What blew my fuse or gasket was the stupidity and over-confidence of bringing workers back not only for shifts--but for OVERTIME! Hardly seems appropriate to OK overtime shifts during a boondoggle limited time production scurry. I think Americans could have waited for that car in a timely fashion, and didn't need Joe or Jill victimized once again in the false sense of security management and our government dangled in front of them via call backs involving overtime. What a crock.